What is the impact of software patent shifts? Evidence from Lotus v. Borland

Economists have debated the extent to which strengthening patent protection spurs or detracts from technological innovation. This paper examines the reduction of software copyright protection in the Lotus v. Borland decision. If patent and copyright protections are substitutes, weakening of one form should be associated with an increased reliance on the other. We find that the firms affected by the diminution of copyright protection disproportionately accelerated their patenting in subsequent years. But little evidence can be found for any harmful effects on firms' performance and incentive to innovate: in fact, the increased reliance on patents is correlated with growth in measures such as sales and R&D expenditures.